The Tax Cuts and Jobs Act (TCJA) was the biggest piece of tax reform in decades. Although it led to many notable changes, one that impacts almost every taxpayer involved an increase to the standardized deduction amount. Upon passage of this law, the standardized deduction rates were set at $12,200 for tax payers filing singly or married filing separately, $24,400 for those married filing jointly and $18,350 for those filing as head of household for the current filing year.
Because of this increase, it can help to start getting an idea of potential itemized deduction amounts now. This allows taxpayers an opportunity to see if they should take advantage of certain tax strategies to increase their deductions before the tax year is over.
For example, taxpayers who find themselves on the cusp of the standardized deduction amount may want to consider some pre-payment options that can increase the itemized total. This would allow for greater tax savings this tax year and could leave the option open to take the standardized deduction next year. Three examples include:
- House payment. Taxpayers who own a home can generally deduct the mortgage interest payment for January 2020, on their 2019 tax return filings.
- Charitable donations. Those who donate to charitable causes may consider donating a larger amount this year and a smaller amount next year to boost their deduction.
- SALT deduction. In some cases, taxpayers could also take an early deduction on their state and local tax payments (SALT). However, it is important to keep in mind that the TCJA reduced the SALT deduction amount. This is currently capped at $10,000 for the taxpayers who are married filing joint returns.
The exact impact of each option will depend on the details of the taxpayer’s situation. As a result, it is generally wise to seek legal counsel experienced in tax planning matters before choosing a tax strategy.